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AXIS Capital Reports Second Quarter Operating Income of $173 Million, or $1.63 Per Diluted Common Share

PEMBROKE, Bermuda --(Business Wire)--

AXIS Capital Holdings Limited ("AXIS Capital") (NYSE:AXS) today reported
net income available to common shareholders for the second quarter of
2014 of $191 million, or $1.79 per diluted common share, compared with
$72 million, or $0.62 per diluted common share, for the second quarter
of 2013. Net income available to common shareholders for the six months
ended June 30, 2014, was $328 million, or $3.03 per diluted common
share, compared with $375 million, or $3.19 per diluted common share,
for the corresponding period of 2013.

Operating income1 for the second quarter of 2014 was $173
million, or $1.63 per diluted common share, compared with $50 million,
or $0.43 per diluted common share, for the second quarter of 2013. For
the six months ended June 30, 2014, AXIS Capital reported operating
income of $310 million, or $2.86 per diluted common share, compared with
$278 million, or $2.36 per diluted common share, for the first six
months of 2013.

1 Operating income and operating return on average common
equity are "non-GAAP financial measures" as defined in Regulation G. A
reconciliation of operating income to net income available to common
shareholders (the nearest GAAP financial measure) and the calculation of
operating return on average common equity are provided in this release,
as is a discussion of the rationale for the presentation of these items.

Second Quarter Highlights2

Gross premiums written increased 1% to $1.2 billion, with growth of 9%
in our reinsurance segment partially offset by a decrease in written
premiums of 3% in our insurance segment;

Net premiums written increased 1% to $1.0 billion;

Net premiums earned increased 6% to $1.0 billion;

Combined ratio of 90.8%, compared to 101.7%;

Current accident year loss ratio of 65.1%, compared to 72.4%;

Estimated natural catastrophe and weather-related pre-tax net losses
of $36 million, primarily related to U.S. weather events, compared to
$140 million (net of reinstatement premiums) incurred during the
second quarter of 2013;

Net favorable prior year reserve development of $85 million
(benefiting the combined ratio by 8.5 points), compared to $42 million
(benefiting the combined ratio by 4.4 points);

Net investment income of $115 million, compared to $83 million;

Pre-tax total return on cash and investments of 1.6%, compared to
(1.3%);

Net income available to common shareholders of $191 million and
annualized return on average common equity of 14.5%, compared to $72
million and 5.6%;

Operating income of $173 million, representing an annualized operating
return on average common equity of 13.1%, compared to $50 million and
3.9%;

Diluted book value per common share of $49.69, a 5% increase during
the quarter and a 16% increase over the last 12 months;

Dividends declared of $0.27 per common share, compared to $0.25 per
common share;

Growth in diluted book value per common share adjusted for dividends
of $2.83, or 6%, per common share.

2 All comparisons are with the same period of the prior year,
unless otherwise stated.

Commenting on the second quarter 2014 financial results, Albert
Benchimol, President and CEO of AXIS Capital, said "AXIS reported strong
results for the second quarter, with operating income of $1.63 per
diluted share, annualized operating ROE of 13.1% and diluted book value
per share of $49.69 at the end of the quarter. Adjusted for dividends,
diluted book value grew 6% during the quarter and 19% over last
year. Underlying these results is the continued rebalancing of our
portfolio toward lower volatility and non-correlating lines creating
greater efficiency of capital overall. During this year, we have already
repurchased 7 million shares, representing 6% of our opening equity, for
$318 million, in addition to distributing $59 million in dividends to
shareholders.

Despite more challenging market conditions, I am highly confident in the
power of our market presence and our delivery of service and technical
know-how. We remain well positioned to access and win high quality
business in all key markets. These attributes, combined with gains we
expect to reap heading into 2015 from our various initiatives,
independent of the property and casualty pricing cycle, will support our
achievement of superior results with less volatility."

Segment Highlights

Insurance Segment

Our insurance segment reported gross premiums written of $754 million in
the quarter ended June 30, 2014, down $27 million, or 3%, from the
second quarter of 2013. The property, professional and credit and
political risk lines of business drove the decrease and were partially
offset by growth in our accident and health business and, to a lesser
extent, an increase in our liability lines. Property lines were impacted
by timing differences in renewals of certain contracts and increasingly
competitive market conditions. The professional lines decrease was
driven by the reshaping of our U.S. D&O portfolio. Credit and political
risk decrease reflected a lower volume of new business written during
the quarter compared to the same quarter in the prior year. These
decreases were partially offset by our accident and health lines which
benefitted primarily from higher renewal premiums and continued strong
new business production. Increases in the liability lines reflected
growth in the U.S. casualty markets. These lines were also the primary
drivers of the 2% decrease in gross premiums written for the first six
months of 2014 to $1.4 billion.

Net premiums written were $541 million in the second quarter of 2014, a
decrease of 3% for the current quarter compared to the second quarter of
2013.

For the first six months of 2014 net premiums written were $998 million
and were comparable to the same period of 2013, with the decreases in
gross premiums written offset by changes in certain of our ceded
reinsurance programs.

Net premiums earned increased by 8% and 10% in the three and six months
ended June 30, 2014, respectively, over the comparative periods in 2013
and reflected the growth in professional, accident and health and
liability lines in recent periods, as well as the positive impact of the
reductions in our ceded reinsurance programs.

Our insurance segment reported underwriting income of $13 million for
the current quarter, compared to a loss of $55 million for the second
quarter of 2013. The current quarter's underwriting results reflected a
combined ratio of 97.2%, compared with 113.2% in the prior year quarter.
The segment's current accident year loss ratio decreased from 80.0% in
the second quarter of 2013 to 70.7% this quarter. This decrease was
driven primarily by the level of natural catastrophe and weather-related
losses. The second quarter of 2014 was impacted by aggregate pre-tax net
losses of $30 million, or 6.6 points, due to U.S. weather-related
events. Comparatively, the second quarter of 2013 included aggregate
pre-tax net losses emanating from natural catastrophe and
weather-related events (inclusive of premiums to reinstate reinsurance
protection) of $90 million, or 21.0 points. The segment's current
accident year loss ratio in the second quarter of 2014 was also impacted
by a higher underlying loss ratio for the property classes of business
and a higher loss ratio for professional U.S. D&O classes established in
Q4 2013 for business written in 2013, which continues to earn in 2014. A
change in the business mix also increased the current accident year loss
ratio during the second quarter of 2014, relative to the comparative
quarter in 2013.

Net favorable prior year loss reserve development was $33 million, or
7.2 points, this quarter compared to $7 million, or 1.6 points, in the
second quarter of 2013.

The segment's acquisition cost ratio increased for both the quarter and
the year to date, due primarily to changes in business mix and a
reduction in commissions received following the reductions in our ceded
reinsurance programs.

For the six months ended June 30, 2014, we recognized an underwriting
gain of $29 million, compared with an underwriting loss of $14 million
for the same period of 2013. The variance was primarily driven by a
reduction in natural catastrophe and weather-related losses of $61
million and an increase in favorable prior year loss reserve development
of $32 million, which were partially offset by an increase in the
current accident year loss ratio due to the same factors that impacted
the quarterly result.

Reinsurance Segment

Our reinsurance segment reported gross premiums written of $477 million
in the second quarter of 2014, up $38 million, or 9%, from the second
quarter of 2013. The increase in the gross premiums written was
primarily due to growth in the professional lines, continued expansion
of the agriculture lines and an increase in the level of multi-year
contracts written. These increases were partially offset by decreases in
our catastrophe and motor lines.

For the six months ended June 30, 2014, gross premiums written were $1.7
billion, up 7% from the comparative period in 2013. The segment's gross
premiums written in the first half of 2014 were significantly impacted
by a number of treaties written on a multi-year basis, especially in the
property, motor and catastrophe lines, and include $90 million of
premiums that relate to future underwriting years. After adjusting for
the impact of the multi-year contracts, the increase in gross written
premiums was driven by the agriculture lines and reflected our growth
initiatives for this line of business.

Net premiums earned increased by 4% for both the second quarter and six
months ended June 30, 2014, primarily reflecting growth in the business
written in recent periods in the professional, agriculture and liability
lines.

Our reinsurance segment reported underwriting income of $114 million for
the current quarter, compared to $65 million for the second quarter of
2013. The segment's combined ratio decreased to 79.3% for the current
quarter, compared to 87.5% in the second quarter of 2013. This included
a decrease in the current accident year loss ratio from 66.3% in the
second quarter of 2013 to 60.4% this quarter. Current quarter's results
included an insignificant amount of losses related to natural
catastrophe and weather-related losses. Comparatively, the second
quarter of 2013 included aggregate pre-tax net losses emanating from
such events of $50 million (net of reinstatement premiums). After
adjusting for the impact of the natural catastrophe and weather-related
losses, the current accident year loss ratio increased by 3.0 points,
primarily due to changes in the business mix. Net favorable prior year
reserve development was $52 million, or 9.7 points, this quarter
compared to $35 million, or 6.7 points, in the second quarter of 2013.

For the six months ended June 30, 2014, we recognized underwriting
income of $206 million compared to $195 million for the same period of
2013; the favorable variance was primarily driven by the reduced level
of natural catastrophe and weather-related losses, which was partially
offset by an increase in the current accident year loss ratio, which was
impacted by changes in the business mix, and a higher acquisition cost
ratio, which reflected higher acquisition costs paid on certain lines of
business.

Investments

Net investment income of $115 million for the quarter represents a $32
million increase from the first quarter of 2014, and a $32 million
year-over-year increase from the second quarter of 2013, with the
variances primarily driven by changes in the fair value of our
alternative investments ("other investments"). These investments
generated $32 million of income in the current quarter, compared to
income of $17 million in the first quarter of 2014 and income of $12
million in the second quarter of 2013. Our net investment income also
benefitted from the growth in our fixed maturities and equity portfolios.

Net realized investment gains for the quarter were $33 million, compared
to $11 million last quarter and $16 million in the second quarter of
2013.

Capitalization / Shareholders' Equity

Our total capital3 at June 30, 2014 was $7.4 billion,
including $1.5 billion of senior notes and $0.6 billion of preferred
equity, comparable to $6.8 billion at December 31, 2013. The increase
was primarily attributable to the issuance, during the first quarter of
2014, of $500 million of senior unsecured notes. Net proceeds from this
senior note offering are expected to be used towards the repayment of
$500 million of AXIS Capital's 5.75% senior unsecured notes that mature
on December 1, 2014.

Diluted book value per common share, calculated on a treasury stock
basis, increased by $2.56, or 5%, in the current quarter and by $7.02,
or 16%, over the past twelve months, to $49.69 with the increase
primarily driven by our operating income and increases in the fair value
of our investments portfolio. During the second quarter of 2014 the
Company declared common dividends of $0.27 per share, with the total
common dividends declared of $1.06 per share over the past twelve
months. Combined, the growth in the diluted book value per common share
adjusted for dividends was $2.83, or 6% for the quarter and $8.08, or
19%, over the past twelve months.

During the quarter we repurchased 3.1 million common shares at an
average price of $45.59 per share, for a total cost of $139 million. At
July 29, 2014, we had $450 million of remaining authorization under our
Board-authorized share repurchase program for common share repurchases
through December 31, 2015.

3 Total capital represents the sum of total shareholders'
equity attributable to AXIS Capital and our senior notes.

Conference Call

We will host a conference call on Wednesday, July 30, 2014 at 8:00 AM
(Eastern) to discuss the second quarter financial results and related
matters. The teleconference can be accessed by dialing (888) 317-6003
(U.S. callers) or (412) 317-6061 (international callers) approximately
ten minutes in advance of the call and entering the code 1-1-1-2-6-8-7.
A live, listen-only webcast of the call will also be available via the
Investor Information section of the Company's website at www.axiscapital.com.
A replay of the teleconference will be available for three weeks by
dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international
callers) and entering the code 1-0-0-4-8-1-3-7. The webcast will be
archived in the Investor Information section of the Company's website.

In addition, a financial supplement relating to our financial results
for the quarter ended June 30, 2014 is available in the Investor
Information section of our website.

AXIS Capital is a Bermuda-based global provider of specialty lines
insurance and treaty reinsurance with shareholders' equity attributable
to AXIS Capital at June 30, 2014 of $6.0 billion and locations in
Bermuda, the United States, Europe, Singapore, Canada, Australia and
Latin America. Its operating subsidiaries have been assigned a rating of
"A+" ("Strong") by Standard & Poor's and "A+" ("Superior") by A.M. Best.
For more information about AXIS Capital, visit our website at www.axiscapital.com.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013

2014

2013

(in thousands)

Assets

Investments:

Fixed maturities, available for sale, at fair value

$

12,598,897

$

11,986,327

Equity securities, available for sale, at fair value

744,760

701,987

Other investments, at fair value

1,044,492

1,045,810

Short-term investments, at fair value and amortized cost

100,166

46,212

Total investments

14,488,315

13,780,336

Cash and cash equivalents

1,044,026

923,326

Restricted cash and cash equivalents

145,377

64,550

Accrued interest receivable

91,278

97,132

Insurance and reinsurance premium balances receivable

2,422,983

1,688,957

Reinsurance recoverable on unpaid and paid losses

1,954,985

1,929,988

Deferred acquisition costs

623,573

456,122

Prepaid reinsurance premiums

337,608

330,261

Receivable for investments sold

366

1,199

Goodwill and intangible assets

90,025

89,528

Other assets

247,921

273,385

Total assets

$

21,446,457

$

19,634,784

Liabilities

Reserve for losses and loss expenses

$

9,805,988

$

9,582,140

Unearned premiums

3,411,108

2,683,849

Insurance and reinsurance balances payable

272,062

234,412

Senior notes

1,490,427

995,855

Payable for investments purchased

237,019

21,744

Other liabilities

221,348

248,822

Total liabilities

15,437,952

13,766,822

Shareholders' equity

Preferred shares

627,843

627,843

Common shares

2,189

2,174

Additional paid-in capital

2,261,084

2,240,125

Accumulated other comprehensive income

272,664

117,825

Retained earnings

5,331,199

5,062,706

Treasury shares, at cost

(2,539,269

)

(2,232,711

)

Total shareholders' equity attributable to AXIS Capital

5,955,710

5,817,962

Noncontrolling interests

52,795

50,000

Total shareholders' equity

6,008,505

5,867,962

Total liabilities and shareholders' equity

$

21,446,457

$

19,634,784

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Three months ended

Six months ended

2014

2013

2014

2013

(in thousands, except per share amounts)

Revenues

Net premiums earned

$

1,000,400

$

945,873

$

1,946,349

$

1,819,911

Net investment income

114,867

83,112

197,610

192,019

Net realized investment gains

33,261

16,235

43,882

60,713

Other insurance related income

1,683

435

4,766

1,030

Total revenues

1,150,211

1,045,655

2,192,607

2,073,673

Expenses

Net losses and loss expenses

565,829

642,899

1,110,036

1,081,313

Acquisition costs

191,862

169,719

363,899

315,209

General and administrative expenses

151,081

149,034

303,810

290,508

Foreign exchange losses (gains)

9,705

(10,320

)

13,939

(45,201

)

Interest expense and financing costs

19,975

15,260

36,569

31,095

Total expenses

938,452

966,592

1,828,253

1,672,924

Income before income taxes

211,759

79,063

364,354

400,749

Income tax expense (benefit)

9,500

(4,662

)

13,625

5,469

Net income

202,259

83,725

350,729

395,280

Net income attributable to noncontrolling interests

1,573

-

2,795

-

Net income attributable to AXIS Capital

200,686

83,725

347,934

395,280

Preferred shares dividends

10,022

8,197

20,044

16,938

Loss on repurchase of preferred shares

-

3,081

-

3,081

Net income available to common shareholders

$

190,664

$

72,447

$

327,890

$

375,261

Per share data

Net income per common share:

Basic net income

$

1.81

$

0.63

$

3.06

$

3.23

Diluted net income

$

1.79

$

0.62

$

3.03

$

3.19

Weighted average number of common shares outstanding - basic

105,118

115,163

107,075

116,088

Weighted average number of common shares outstanding - diluted

106,289

116,671

108,329

117,660

Cash dividends declared per common share

$

0.27

$

0.25

$

0.54

$

0.50

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013

2014

2013

Insurance

Reinsurance

Total

Insurance

Reinsurance

Total

(in thousands)

Gross premiums written

$

754,110

$

477,169

$

1,231,279

$

781,055

$

438,750

$

1,219,805

Net premiums written

541,097

459,065

1,000,162

559,584

433,823

993,407

Net premiums earned

457,670

542,730

1,000,400

422,345

523,528

945,873

Other insurance related income

-

1,683

1,683

435

-

435

Net losses and loss expenses

(290,466

)

(275,363

)

(565,829

)

(330,992

)

(311,907

)

(642,899

)

Acquisition costs

(71,039

)

(120,823

)

(191,862

)

(58,749

)

(110,970

)

(169,719

)

Underwriting-related general and

administrative expenses(4)

(83,512

)

(34,299

)

(117,811

)

(88,526

)

(35,243

)

(123,769

)

Underwriting income (4)

$

12,653

$

113,928

126,581

$

(55,487

)

$

65,408

9,921

Corporate expenses

(33,270

)

(25,265

)

Net investment income

114,867

83,112

Net realized investment gains

33,261

16,235

Foreign exchange (losses) gains

(9,705

)

10,320

Interest expense and financing costs

(19,975

)

(15,260

)

Income before income taxes

$

211,759

$

79,063

Net loss and loss expense ratio

63.5

%

50.7

%

56.6

%

78.4

%

59.6

%

68.0

%

Acquisition cost ratio

15.5

%

22.3

%

19.2

%

13.9

%

21.2

%

17.9

%

General and administrative

expense ratio

18.2

%

6.3

%

15.0

%

20.9

%

6.7

%

15.8

%

Combined ratio

97.2

%

79.3

%

90.8

%

113.2

%

87.5

%

101.7

%

4Underwriting-related general and administrative expenses
and consolidated underwriting income are "non-GAAP financial
measures", as defined in SEC Regulation G. Reconciliations of these
amounts to the nearest GAAP financial measures (total general and
administrative expenses and income before income taxes,
respectively) are provided in this release, as are discussions of
the rationale for the presentation of these items.

AXIS CAPITAL HOLDINGS LIMITED

CONSOLIDATED SEGMENTAL DATA (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

2014

2013

Insurance

Reinsurance

Total

Insurance

Reinsurance

Total

(in thousands)

Gross premiums written

$

1,355,831

$

1,696,847

$

3,052,678

$

1,377,769

$

1,588,518

$

2,966,287

Net premiums written

997,789

1,666,957

2,664,746

992,264

1,571,582

2,563,846

Net premiums earned

906,884

1,039,465

1,946,349

824,224

995,687

1,819,911

Other insurance related income

-

4,766

4,766

1,030

-

1,030

Net losses and loss expenses

(569,889

)

(540,147

)

(1,110,036

)

(548,328

)

(532,985

)

(1,081,313

)

Acquisition costs

(136,096

)

(227,803

)

(363,899

)

(116,009

)

(199,200

)

(315,209

)

Underwriting-related general and

administrative expenses

(171,459

)

(70,375

)

(241,834

)

(175,415

)

(68,283

)

(243,698

)

Underwriting income (loss)

$

29,440

$

205,906

235,346

$

(14,498

)

$

195,219

180,721

Corporate expenses

(61,976

)

(46,810

)

Net investment income

197,610

192,019

Net realized investment gains

43,882

60,713

Foreign exchange (losses) gains

(13,939

)

45,201

Interest expense and financing costs

(36,569

)

(31,095

)

Income before income taxes

$

364,354

$

400,749

Net loss and loss expense ratio

62.8

%

52.0

%

57.0

%

66.5

%

53.5

%

59.4

%

Acquisition cost ratio

15.0

%

21.9

%

18.7

%

14.1

%

20.0

%

17.3

%

General and administrative

expense ratio

19.0

%

6.7

%

15.6

%

21.3

%

6.9

%

16.0

%

Combined ratio

96.8

%

80.6

%

91.3

%

101.9

%

80.4

%

92.7

%

AXIS CAPITAL HOLDINGS LIMITED

NON-GAAP FINANCIAL MEASURE RECONCILIATION (UNAUDITED)

OPERATING INCOME, OPERATING RETURN ON AVERAGE COMMON EQUITY

AND UNDERWRITING-RELATED GENERAL AND ADMINISTRATIVE EXPENSES

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Three months ended

Six months ended

2014

2013

2014

2013

(in thousands, except per share amounts)

Net income available to common shareholders

$

190,664

$

72,447

$

327,890

$

375,261

Net realized investment gains, net of tax(1)

(27,112

)

(14,604

)

(31,412

)

(55,674

)

Foreign exchange losses (gains), net of tax(2)

9,191

(10,879

)

13,333

(45,132

)

Loss on repurchase of preferred shares, net of tax(3)

-

3,081

-

3,081

Operating income

$

172,743

$

50,045

$

309,811

$

277,536

Earnings per common share - diluted

$

1.79

$

0.62

$

3.03

$

3.19

Net realized investment gains, net of tax

(0.25

)

(0.13

)

(0.29

)

(0.48

)

Foreign exchange losses (gains), net of tax

0.09

(0.09

)

0.12

(0.38

)

Loss on repurchase of preferred shares, net of tax

-

0.03

-

0.03

Operating income per common share - diluted

$

1.63

$

0.43

$

2.86

$

2.36

Weighted average common shares and common share

equivalents - diluted

106,289

116,671

108,329

117,660

Average common shareholders' equity

$

5,263,537

$

5,160,346

$

5,258,993

$

5,105,511

Annualized return on average common equity

14.5

%

5.6

%

12.5

%

14.7

%

Annualized operating return on average common equity

13.1

%

3.9

%

11.8

%

10.9

%

(1)

Tax cost of $6,149 and $1,631 for the three months ended June 30,
2014 and 2013, respectively, and $12,470 and $5,039 for the six
months ended June 30, 2014 and 2013, respectively. Tax impact is
estimated by applying the statutory rates of applicable
jurisdictions, after consideration of other relevant factors
including the ability to utilize capital losses.

(2)

Tax benefit (cost) of $514 and $559 for the three months ended June
30, 2014 and 2013, respectively, and $606 and ($69) for the six
months ended June 30, 2014 and 2013, respectively. Tax impact is
estimated by applying the statutory rates of applicable
jurisdictions, after consideration of other relevant factors
including the tax status of specific foreign exchange transactions.

(3)

Tax impact is nil.

In addition to underwriting-related general and administrative expenses,
our total general and administrative expenses of $151,081 and $149,034
for the three months ended June 30, 2014 and 2013, respectively, and
$303,810 and $290,508 for the six months ended June 30, 2014 and 2013,
respectively, include corporate expenses.

Cautionary Note Regarding Forward-Looking Statements

This release contains forward-looking statements within the meaning of
the U.S. federal securities laws. Forward-looking statements contained
in this release include our expectations regarding market conditions and
information regarding our estimates of losses related to natural
disasters. These statements involve risks, uncertainties and
assumptions. Actual events or results may differ materially from our
expectations. Important factors that could cause actual events or
results to be materially different from our expectations include (1) the
occurrence and magnitude of natural and man-made disasters, (2) actual
claims exceeding our loss reserves, (3) general economic, capital, and
credit market conditions, (4) the failure of any of the loss limitation
methods we employ, (5) the effects of emerging claims, coverage and
regulatory issues, including uncertainty related to coverage
definitions, limits, terms and conditions, (6) the failure of our
cedants to adequately evaluate risks, (7) inability to obtain additional
capital on favorable terms, or at all, (8) the loss of one or more key
executives, (9) a decline in our ratings with rating agencies, (10) the
loss of business provided to us by our major brokers, (11) changes in
accounting policies or practices, (12) the use of industry catastrophe
models and changes to these models, (13) changes in governmental
regulations, (14) increased competition, (15) changes in the political
environment of certain countries in which we operate or underwrite
business, (16) fluctuations in interest rates, credit spreads, equity
prices and/or currency values, and (17) the other factors set forth in
our most recent report on Form 10-K, Form 10-Q and other documents on
file with the Securities and Exchange Commission. We undertake no
obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

In this release, we present operating income, consolidated underwriting
income and underwriting-related general and administrative expenses,
which are "non-GAAP financial measures" as defined in Regulation G.

Operating income represents after-tax operational results without
consideration of after-tax net realized investment gains (losses) and
foreign exchange gains (losses). We also present diluted operating
earnings per share and operating return on average common equity
("operating ROACE"), which are derived from the non-GAAP operating
income measure. Reconciliations of operating income, diluted operating
earnings per share and operating ROACE to the nearest GAAP financial
measures (based on net income available to common shareholders) are
included above.

Consolidated underwriting income (loss) is a pre-tax measure of
underwriting profitability that takes into account net premiums earned
and other insurance related income as revenues and net losses and loss
expenses, acquisition costs and underwriting-related general and
administrative costs as expenses. Underwriting-related general and
administrative expenses include those general and administrative
expenses that are incremental and/or directly attributable to our
individual underwriting operations. While these measures are presented
in the Segment Information footnote to our Consolidated Financial
Statements, they are considered non-GAAP financial measures when
presented elsewhere on a consolidated basis. A reconciliation of
consolidated underwriting income (loss) to income before income taxes
(the nearest GAAP financial measure) is included in the 'Consolidated
Segmental Data' section of this release. Our total general and
administrative expenses (the nearest GAAP financial measure to
underwriting-related general and administrative expenses) also includes
corporate expenses; the two components are separately presented in the 'Consolidated
Segmental Data' section of this release.

We present our results of operations in the way we believe will be most
meaningful and useful to investors, analysts, rating agencies and others
who use our financial information to evaluate our performance. This
includes the presentation of "operating income" (in total and on a per
share basis), "annualized operating ROACE" (which is based on the
"operating income" measure) and "consolidated underwriting income
(loss)", which incorporates "underwriting-related general and
administrative expenses".

Operating Income

Although the investment of premiums to generate income and realized
investment gains (or losses) is an integral part of our operations, the
determination to realize investment gains (or losses) is independent of
the underwriting process and is heavily influenced by the availability
of market opportunities. Furthermore, many users believe that the timing
of the realization of investment gains (or losses) is somewhat
opportunistic for many companies.

Foreign exchange gains (or losses) in our Consolidated Statements of
Operations are primarily driven by the impact of foreign exchange rate
movements on net insurance-related liabilities. However, this movement
is only one element of the overall impact of foreign exchange rate
fluctuations on our financial position. In addition, we recognize
unrealized foreign exchange gains (or losses) on our available-for-sale
investments in other comprehensive income and foreign exchange gains (or
losses) realized upon the sale of these investments in net realized
investment gains (or losses). These unrealized and realized foreign
exchange movements generally offset a large portion of the foreign
exchange gains (or losses) reported separately in earnings, thereby
minimizing the impact of foreign exchange rate movements on total
shareholders' equity. As such, the Statement of Operations foreign
exchange gains (or losses) in isolation are not a fair representation of
the performance of our business.

We believe that showing net income available to common shareholders
exclusive of net realized gains (losses) and foreign exchange gains
(losses) reflects the underlying fundamentals of our business. In
addition, we believe that this presentation enables investors and other
users of our financial information to analyze performance in a manner
similar to how our management analyzes the underlying business
performance. We also believe this measure follows industry practice and,
therefore, facilitates comparison of our performance with our peer
group. We believe that equity analysts and certain rating agencies that
follow us, and the insurance industry as a whole, generally exclude
these items from their analyses for the same reasons.

Consolidated Underwriting Income (Loss)/Underwriting-Related General
and Administrative Expenses

Corporate expenses include holding company costs necessary to support
our worldwide (re)insurance operations and costs associated with
operating as a publicly-traded company. As these costs are not
incremental and/or directly attributable to our individual underwriting
operations, we exclude them from underwriting-related general and
administrative expenses and, therefore, consolidated underwriting income
(loss). Interest expense and financing costs primarily relate to
interest payable on our senior notes and are excluded from consolidated
underwriting income (loss) for the same reason.

We evaluate our underwriting results separately from the performance of
our investment portfolio. As such, we believe it appropriate to exclude
net investment income and net realized investment gains (losses) from
our underwriting profitability measure.

As noted above, foreign exchange gains (losses) in our Consolidated
Statement of Operations primarily relate to our net insurance-related
liabilities. However, we manage our investment portfolio in such a way
that unrealized and realized foreign exchange rate gains (losses) on our
investment portfolio generally offset a large portion of the foreign
exchange gains (losses) arising from our underwriting portfolio. As a
result, we believe that foreign exchange gains (losses) are not a
meaningful contributor to our underwriting performance and, therefore,
exclude them from consolidated underwriting income (loss).

We believe that presentation of underwriting-related general and
administrative expenses and consolidated underwriting income (loss)
provides investors with an enhanced understanding of our results of
operations, by highlighting the underlying pre-tax profitability of our
underwriting activities.